Uneasy times for Hummer dealers

Kiichiro Sato
AP

As if high gas prices, a weak economy and a strike by a major supplier weren't enough to drag down their sales, Hummer dealers are now reeling from the news that General Motors Corp. may consider selling the brand.

DETROIT — As if high gas prices, a weak economy and a strike by a major supplier weren’t enough to drag down Hummer’s sales, Hummer dealers are now reeling from the news that General Motors Corp. may consider selling the brand.

GM Chief Executive Rick Wagoner recently told shareholders that the automaker was conducting a strategic review of Hummer and was considering all options, from revamping of the lineup to a partial or complete sale. Wagoner gave no timeline or further details.

“I’m not real happy with General Motors right now,” said Brad Johnson, general manager of Hummer of Columbus in Dublin, Ohio. “It was a poor choice of words on their part and it’s a bad decision to come out and say something when you don’t know what’s going to happen.”

Jim Bushart, parts director at Lynch Hummer in Chesterfield, Mo., said he assumed GM was analyzing the Hummer brand as gas prices reach $4 a gallon and consumers look for more fuel-efficient vehicles. But he was surprised the automaker discussed the review publicly.

“Maybe they were hoping that by making an announcement they would drum up some interest,” he said.

Others griped that the company could hurt sales of Hummer’s first pickup, the H3T, which comes out this summer.

GM spokesman Nick Richards said the company decided to announce the review, along with the closure of four plants, to demonstrate how seriously it takes the U.S. market’s rapid shift away from trucks and sport utility vehicles.

At an event in Washington Thursday, GM’s North America President Troy Clarke again refused to give a timetable for the review but indicated it will be done quickly.

“It’s in our best interest to move forward in a very expeditious manner,” he said. “It’s not the kind of thing that gets better with time. We ought to make our assessments, be decisive and get moving forward.”

Hummer has always been a niche brand, with U.S. sales reaching a peak of 71,524 in 2006. By comparison, Honda Motor Co. sold 53,299 Civic sedans last month alone. But unlike small cars whose sales have exploded this year, the Hummer niche is disappearing. Hummer took the worst hit of any brand through May of this year, with U.S. sales down 36 percent compared to the same period the year before, according to Autodata Corp.

Dan Towbin, who sits on GM’s Hummer dealers’ advisory board and whose 60,000-square-foot Las Vegas Hummer dealership is the largest in the U.S., said he wasn’t surprised by the news of the review. Towbin said GM has assured him it’s giving equal consideration to continuing the brand with newer, more fuel-efficient vehicles.

“Obviously the landscape has changed for the automotive industry for a lot of reasons. There’s been a dramatic shift from trucks to cars and crossovers, and fuel is an issue for a brand like Hummer,” he said. “Like any good business they must continue to analyze their assets and determine whether they’re worthwhile to continually reinvest.”

GM hasn’t named any potential buyers, but they could include Indian automakers Tata Motors Ltd., which just acquired the Land Rover and Jaguar brands from Ford Motor Co., or Mahindra & Mahindra Ltd., which was in the running for Land Rover and Jaguar, according to Aaron Bragman, an auto analyst with Global Insight. Bragman said Chinese automakers also have shown some interest in acquiring an American brand.

But Bragman said there are significant barriers to a sale, including the tight credit market and the degree to which Hummer has been integrated into GM. For example, the midsize H3 shares a platform with GM’s compact pickups.

“I can’t see them selling it but I do see them restructuring and coming up with some new product, a rethink of what they’re doing with it,” Bragman said.

Hummer’s fortunes were partly influenced by a three-month strike at American Axle and Manufacturing Holdings Inc., a major GM supplier. The strike shut down operations at more than 30 GM factories and at the AM General LLC plant in Mishawaka, Ind., which makes the Hummer H2 under contract for GM. AM General owned the Hummer brand until 1999, when GM bought the marketing rights.

The strike didn’t shut down the GM plant in Shreveport, La., that makes the midsize H3. But the company shifted production from the H3 to compact pickups for three months because of parts shortages due to the strike, spokesman Tony Sapienza said. Production of the H3 resumed at the end of May.

Craig Hubble, general manager of Hummer of Novi and Detroit Hummer, said he is selling every vehicle he can get, but his inventory has been severely diminished.

“The demand is there. It’s the supply,” he said.

But the broader problem for Hummer and other large vehicles has been the fast rise in gas prices. Sales of large pickups fell 21 percent through May, while sales of large SUVs were down 39 percent. The H3 gets 15 miles to the gallon, according to government estimates. The government doesn’t estimate fuel economy for the H2 because it’s so large, but dealers estimate it gets around 12 miles per gallon. With gas at $4 a gallon, it costs $128 to fill up the H2’s 32-gallon tank.

Ed Williamson, owner of Williamson Hummer in Miami, says GM should respond not by selling the brand but by giving it more options with better fuel efficiency, including crossovers, diesels and hybrids.

“I think that there is a definite market for a Hummer family of vehicles,” he said. “I think that there is a way to make a Hummer green, and I sincerely hope that General Motors decides to invest in that.”

Towbin said GM will get a good start this fall, when it makes all its vehicles capable of running on E85 ethanol. Hummers that can run on biodiesel will be up next, in 2009, he said.

Towbin and others agree there’s too much equity in the Hummer brand name to cancel it entirely.

“With Hummer, everybody has some opinion, and that is a wonderful thing as far as value of the brand. In today’s business world, that’s priceless,” he said.

There’s also a lot of money invested by the brand’s 170 dealers, many of whom built mammoth, Quonset-hut styled showrooms in the last few years according to GM’s specifications. Williamson said he spent $2 million on his 2,500-square-foot Hummer showroom. Johnson said some dealers spent up to $10 million building showrooms with test tracks and other elaborate features.

“There’s too much money invested here for GM to do away with it,” Johnson said. “They’d be looking at a huge class action lawsuit.”

Other issues could make GM pause. While Hummer sales are down in the U.S., they’re growing elsewhere, Richards said. Hummer sales were up 42 percent in Europe through April, thanks to booming sales in Russia and a new right-hand-drive version in the United Kingdom. Sales in the Middle East were up 27 percent, while sales in the Asia and Pacific region shot up 345 percent as right-hand-drive versions arrived in Japan and Australia.

And there are still legions of U.S. fans for whom gas prices are a minor inconvenience if they have $57,500 to spend on an H2 or $31,000 on an H3.

“Am I going to buy the next truck? Yes. Is someone going to build the Hummer? Yes. It’s an icon,” said Glen Peck of Annapolis, Md., a board member of an enthusiasts’ group called The Hummer Club.